It had been long predicted it could come to pass, but still Kenya in its real ‘doubting Thomas’ style refused to acknowledge, now it has come to pass Public debt has hit a new record of Ksh3.566 trillion.
It had been long predicted it could come to pass, but still Kenya in its real ‘doubting Thomas’ style refused to acknowledge and cap its spending and borrowing habits, now it has come to pass.
Latest data from the National Treasury, shows gross domestic debt stock increased by 33.6 per cent to Sh1.854 trillion as at end of September 2016, compared to Sh1.388 trillion in a similar period last year.
Public debt has hit a new record of Ksh3.566 trillion, signaling a continued heavy borrowing by the national government to bridge its budget deficit for the 2016-17 financial year.
The total external debt stock, including the international sovereign bond stood at Sh1.712 trillion at the same period, pointing to more domestic borrowing by the government.
The World Bank, in a newly-released report last month had warned, Kenya was building a potentially dangerous mountain of debt that could in the long run expose the economy to systemic risks.
However, the Treasury’s refuted that the national debt was getting out of control, claiming it was manageable and that there was room to accumulate more debt without compromising economic growth.
Which was true to some extent since the margin for further debt accumulation was available however the margin was narrowing at an uncomfortably rapid pace and exposing the country to potentially difficult times ahead if the borrowing spree is not tamed, now it has come to pass.
Kenya Revenue Authority announced it had missed its quarter one target by Sh14.4 billion, despite a strong performance in July and August.
In the two months, KRA collected Sh178.20 billion, Sh25.47 billion more than the Sh152.73 billion collected in the same period of the 2015-16 financial year.
Cumulative revenue collection including Appropriations in Aid (income that a government department is authorised to retain rather than surrender to the Consolidated Fund) from July through September 2016 amounted to Sh313.6 billion (equivalent to 4.2 per cent of GDP). This is against a target of Sh328.0 billion, 4.4 per cent of GDP.
“This represented an underperformance of Sh14.4 billion mainly due to shortfalls in income tax (Pay As You Earn, A-I-A collection, value added tax (imports) and import duty,” Treasury CS Henry Rotich said in the quarterly economic and budgetary review for the period ending September 30 as reported by the star.
The Treasury has set a target of Sh1.37 trillion in ordinary revenues for KRA this financial year, which is Sh160 billion more than the Sh1.21 trillion collected in the fiscal year ended June 30.
Kenya’s public debt increased from 42.1 per cent of GDP in 2012/13 to 55.1 per cent of GDP in 2015/16, on the back of a massive increase in development spending.
According to World Bank, the situation is further compounded by the fact that growth in public expenditure has far outstripped growth in revenues, creating a major imbalance.
Debt in itself is not bad, in fact it is vital for growth however a country needs to keep a close eye on how much debt it can handle, before hitting the ‘tipping point.’
Tipping point is when a country run the risk spiraling into a vicious cycle of higher interest rates putting pressure on your budget, which makes the debt riskier and causes interest rates to rise further.
Kenya has committed to borrowing billions of shillings from China to finance mega public infrastructure projects, such as the standard gauge railway (SGR) line.
Recent forecasts indicate that the borrowings could soon take the debt load past 60 per cent of GDP.
The silver lining is that the economy remained resilient in 2016 with a growth of 6.2 per cent in the second quarter of 2016, compared to a growth of 5.9 per cent in the first quarter of 2016 according to Rotich.